The Goodwill Investing Journal - Issue #40

Hello everyone! Bit of a rant on rent vs buy today in section three.

But before that, thought I’d share that I ran my first half marathon! Finished in 2:05 and achieved the ultimate goal: to beat my wife 😊.

MJ was 2:06, and she says she didn’t let me win, but I’m not so sure - she did the same half marathon 2 years ago in 1:46.

It’s hard to relate if you’ve never done a half marathon - sort of like listening to vegans. But now that I’ve done it, I see what all the fuss is about. Despite destroying my knees along the way, was that ever fun and the feeling of crossing the finish line was well worth the pain.

My friend had a laugh and texted me after seeing a video of me running, he asked - “did you take running classes from Terry Fox?” LOL.

Anyway, hope everyone enjoyed their thanksgiving holiday’s last week.

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1. Personal Finance

Last week I shared a simple but important hack to make sure all your investment dollars are working for you: dividend reinvestments.

This week I’m talking about something more important:

→ automatic recurring investments

Why are they important?

Keeps your money active - by setting up automatic recurring investments, you make sure every dollar is regularly deployed into the market.

Reduces emotional mistakes - avoiding the ever perilous thought “should I contribute this month?” prevents you from making short term predictions where the market is going and when (over time, it goes up).

Increases your long term money making potential - invest $1 today and it will turn into a beautiful tree over time. But if you add $1 each week, you will grow a forest.

Again, with the Wealth Simple app, you can click “Automations” → “Recurring Investments” and then select the ETF you own and the amount you wish to buy on a recurring basis.

Voila, the app will automatically acquire more of the ETF you pick and you are now stacking your investment dollars up way faster.

This is starkly easier than my experience working with the bank’s brokers; you have to fill out confusing forms and mail them to Ontario and wait. Uhhhh, earth to the banks, I ain’t got time for this $hit!

Anyway, you can set it to automatically buy more shares with your paycheque on a schedule that suits you. At minimum, I recommend once a month. Even better, every two weeks. You can even set up daily purchases.

Cut out that $5 coffee and buy $5 of stock every day…I dare you.

Any dollar amount is allowed.

The cool thing too is receiving a notification on your iPhone app when an automatic buy is completed. Your little tree is turning into a forest.

The worlds greatest businesses aren’t built on ideas.

They are good ideas built on great systems.

Same thing with investing.

Set it up. Let it grow.

PS if you want to learn more about DIY investing, check out my investing course. It’s 2 hours and when you’re done you’ll have the confidence to do this all yourself.

PPS 🎁 Get $25 when you open a Wealthsimple account. Use my referral code: PRGS3Q

2. Stock Markets

In 2008 Buffet famously bet Protégé Partners (a large Wall Street Firm) that the S&P500 would beat 5 of Protege's top hedge funds in the ensuing 10 years.

The winner would donate to charity.

To quote from Buffet's annual Shareholder letter:

Here’s the final scorecard for Buffet’s bet:

90% of professionals won’t beat the market over long periods of time. Most likely, we won’t, either.

We don’t pretend to know how a car engine works. We just know that it does.

Same thing with investing. Buy the index.

3. Real Estate

Got into a spat with a bunch of folks on LinkedIn last week about renting vs buying.

Obviously struck a nerve. Anytime you remotely suggest that renting is better than buying, the pitchforks come for you.

Because Millennials have been groomed to think that home equity appreciation is the golden ticket to wealth. Understandable, because boomers benefited from that golden ticket. You counter that philosophy, you get people mad.

It was awesome, the post flew. 50,000 impressions and 100 comments.

Some of my responses are in depth, some are cheeky. But that’s social for you. Red faced armchair warriors (sometimes I can be one too) yelling at me kept the algo pumping.

Admittedly, the picture itself (below) is not doing full justice for either side of the argument. But that wasn’t the point. The point of the post was to inspire some real thought, stoke open conversation about housing, renting, debt payments, returns, opportunity cost, etc.

Home ownership affords a lot of benefits: stability, forced saving through principal paydown, tax free growth (in Canada), customization, among others.

The drawbacks are just as plentiful: overbearing debt, maintenance, property tax, lack of liquidity, high up front cost, and let’s not forget, opportunity cost of your dollars being in an asset that traditionally goes up with inflation while missing out on the opportunity for higher potential returns in stocks.

Renting also affords benefits: flexibility, no maintenance, no property taxes, lower up front costs, and the ability to funnel excess cash flow that would otherwise be spent on not-so-insignificant housing costs into higher returning stocks.

The cons include: no forced savings (most people sadly spend their savings instead of investing), can get kicked out, rental increases (not as prevalent in rent controlled locations like BC), no tax free growth, etc.

Personally, I’ve owned two homes and intend to own again, so I'm not suggesting renting is better than owning.

But monthly bills on top of a mortgage certainly create the old feeling "house rich, cash poor".

The answer is, it depends on what matters to you.

Point is, be careful with the decision to buy and take on debt, with anything you do.

Question for readers - where are you on this debate? I’d love to hear your comments!

PS PWL Capital has a cool rent vs buy calculator, see for yourself which wins.

1 Quote

A Question

What is one habit that you wish you adopted earlier in your life?

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Thank you

Eddie Gudewill, CFA

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